Tech Mahindra's in-house startups may raise external funds

The move is aimed at turning these entities into standalone companies. Saral Rozgar and Microgrid could raise money by the end of this year.Jochelle Mendonca | ET Bureau | February 04, 2016, 08:42 IST

Tech Mahindra, the IT arm of Mahindra Group, expects two of its in-house startups to raise external funds by the end of 2016 as part of its plans to turn these entities into standalone companies.

“Saral Rozgar and Microgrid could raise external money by the end of this year. We have seen some interest from the Ontario State government to fund the microgrid startup but we have not taken any decision as yet,” CP Gurnani, CEO of Tech Mahindra, told ET.

Tech Mahindra has been building startups internally for the past five years under its intrapreneurship programme.

Gurnani said that additional funds will bring in greater operating rigour and helps these startups expand. Saral Rozgar plans to expand to West Asia and has said that it will raise external money to fund its growth, ET had earlier reported.

Tech Mahindra’s internal startup programme runs in two batches and internal ideas that make the cut are mentored in-house for about 18 months to see if the idea has traction and can scale up, the company’s head of innovation Sirisha Voruganti said.

“In each batch about two ideas get the go-ahead. So it’s about four startups a year. Obviously, everyone can’t be working on internal startups, but we find it is a good way to help our employees who have ideas but may not have the risk appetite to go out and do it on their own,” Voruganti said.

She said the startup CEO is given a term sheet where his stake and Tech Mahindra’s stake are spelled out. The startup CEO then sees an upside when the startup is spun off and other funds raised.

“I wouldn’t say the process (of managing the programme) is hard or difficult. It can be managed if you want to manage it,” Voruganti said.

While Indian IT firms have begun setting aside sums of money to invest in startups, Tech Mahindra will be one of the few to have spun out separate entities. The company has about $150 million to invest in nascent technologies and firms.

“We got permission to spend about $200 million from our board. We put in about $12 million into FixStream and we have committed about $40 million to other places.So we have about $150 million left in dry powder as you put it,” Gurnani said.

Infosys has a $500 million fund to invest in startups, while Wipro has a $100 million fund. Tech Mahindra too expects to invest in external startups in the next year.

“We are looking at startups that have products that can help our 800 customers. We are not saying everything has to be in-house,” Gurnani said. Tech Mahindra has invested in Dion, which offers risk management solutions, and infrastructure management startup FixStream.